Interim Budget 2024: 6 key takeaways

 Interim Budget 2024: 6 key takeaways

Budget 2024 Key Points: From the govt's fiscal deficit to allocations for health and education to GDP growth, here's what the Interim Budget 2024 reveals.

India Budget 2024 Key Takeaways: FM Nirmala Sithatraman finished her interim Budget speech within an hour. Here are the six main takeaways from the Budget 2024-25 documents. The findings are based on both reading the revised estimates for the current year — as against the Budget Estimates given last year — as well as the Budget Estimates for the coming financial year (2024-25).

Since this is an interim budget, the revised estimates for the current year are the more significant bits to look at. That’s because the Budget Estimates for the next year will most likely change when the full budget is presented in July after the elections.

1. Muted expectations from nominal GDP growth

Nominal GDP is the fundamental variable in any Budget. The real GDP growth that is commonly talked about is derived from nominal GDP growth after removing the effect of inflation. So, if nominal GDP growth in a particular year is 12% and inflation is 4%, then the real GDP growth will be 8%.

For the coming financial year (2024-25), the government expects the nominal GDP to grow by 10.5%. According to the latest Budget documents, the government projects India’s nominal GDP to be Rs 3,27,71,808 crore, assuming 10.5 % growth over the estimated nominal GDP of Rs 2,96,57,745 crore in the current financial year (2023-24).

2. Significant reduction in fiscal deficit

Fiscal deficit essentially shows the amount of money that the government borrows from the market. It does so to bridge the gap between its expenses and income. Fiscal Deficit is the most watched variable because if a government borrows more, it leaves a smaller pool of money for the private sector to borrow from. That, in turn, leads to higher interest rates, which, further drags down economic activity.

In the run-up to the Budget, analysts expected the government to bring down the fiscal deficit to 5.9% of the GDP. The FM did slightly better by announcing that the fiscal deficit has been brought down to 5.8% level. Further, the FM announced similarly ambitious targets for the FY25 — at 5.1% of GDP— and FY26 — at 4.5% of GDP.

While this is welcome news, it leads to two questions: how is fiscal consolidation being achieved, and what will be its impact on growth.

3. Capital expenditure target not met

The cornerstone of last year’s Budget presentation was the spike in capital expenditure by the government. The government received a lot of praise for raising capex target to Rs 10 lakh crore. But the data for Revised Estimates shows that the capex was not met; it stands at Rs 9.5 lakh crore. This explains some part of the reduction in fiscal deficit.

4. Cuts in health and education spending

Health and education budget allocations are typically much lower than what India needs but the revised estimates show that even those targets have not been met in the current financial year.

The government was supposed to spend Rs 1,16,417 crore on education but ended up spending Rs 1,08,878 crore.

Similarly on health, it budgeted an expenditure for Rs 88,956 crore but actually spent only Rs 79,221 crore.

5. Cuts in core schemes for the marginalised sections

Similar cuts can be seen in the allocation for the core schemes for marginalised sections such as SCs, STs, and minorities.

For instance, the Revised Estimates (RE) for the Umbrella Scheme for Development of Schedule Castes are Rs 6,780 crore against the Budget Estimates (BE) of Rs 9,409 crore.

For STs, the RE is Rs 3,286 crore against a BE of Rs 4,295 crore.

For minorities, the fall has been the sharpest. From a BE of Rs 610 crore in FY24 to an RE of Rs 555 crore.

For the Umbrella Programme for Development of Other Vulnerable Groups, the RE is Rs 1,918 crore, down from a BE of Rs 2,194 crore.

6. Income tax is now the biggest income generator for the government

Most government financial resources come from borrowings. But the second biggest contributor — or the top income generator — is the revenues from income tax. The Budget documents suggest that income tax revenues will account for 19% of all government resources in FY25. Corporate tax will account for 17%, GST for 18% and borrowings for 28%.